<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Date of Report (Date of earliest event reported); Febuary 8, 1999
SIMON PROPERTY GROUP, L.P.
(Exact name of registrant as specified in its charter)
Commission file number 333-11491
Delaware 34-1755769
(State or other jurisdiction (I.R.S. Employer
of incoporation or organization) Identification No.)
115 West Washington Street
Indianapolis, Indiana 46204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317)636-1600
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
a) and b) Audited financial statements of Corporate Property Investors,
Inc. as of and for the years ended December 31, 1997 and 1996 beginning at page
F-1.
2
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: February 8, 1999
SIMON PROPERTY GROUP, L.P.
--------------------------------------
BY: SIMON PROPERTY GROUP, INC.
General Partner
By /s/ JOHN DAHL
------------------------------------
John Dahl
Senior Vice President and Chief
Accounting Officer
3
<PAGE> 4
INDEX TO FINANCIAL PAGES
<TABLE>
<S> <C>
REPORT OF INDEPENDENT AUDITORS.............................. F-2
CONSOLIDATED BALANCE SHEETS OF CORPORATE PROPERTY
INVESTORS, INC. .......................................... F-3
CONSOLIDATED STATEMENTS OF INCOME OF CORPORATE PROPERTY
INVESTORS, INC. .......................................... F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS OF CORPORATE PROPERTY
INVESTORS, INC. .......................................... F-5
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY OF CORPORATE
PROPERTY INVESTORS, INC. ................................. F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF CORPORATE
PROPERTY INVESTORS, INC. ................................. F-7
</TABLE>
F-1
<PAGE> 5
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees of Corporate Property Investors
We have audited the accompanying consolidated balance sheets of Corporate
Property Investors as of December 31, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of Corporate Property Investors' management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Corporate Property Investors at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
New York, NY
February 5, 1998
except for the note, Commitments,
Contingencies and Other Comments
item (1), as to which the date is
February 19, 1998
F-2
<PAGE> 6
CORPORATE PROPERTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------- ------------------------
1998 1997 1996
---- ---- ----
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Real estate investments:
Operating properties................................. $1,909,854 $2,341,678 $2,377,177
Operating property held for sale..................... 584,967 -- --
Investments in real estate joint ventures............ 111,704 109,172 159,453
Construction-in-progress and pre-construction costs
($20,773, $20,510 and $2,605)..................... 37,315 31,697 77,032
Land held for development............................ 23,845 22,420 6,809
Properties subject to net lease and other............ 20,698 21,529 16,974
---------- ---------- ----------
2,688,383 2,526,496 2,637,445
Cash and cash equivalents.............................. 16,196 124,808 106,495
Short-term investments................................. -- 40,000 248,459
Receivables and other assets........................... 104,177 118,950 122,511
---------- ---------- ----------
Total assets................................. $2,808,756 $2,810,254 $3,114,910
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgages payable.................................... $ 14,285 $ 15,645 $ 21,079
Notes and Bonds payable.............................. 843,363 843,415 943,611
Accounts payable and other liabilities............... 122,956 148,580 194,442
---------- ---------- ----------
Total liabilities............................ 980,604 1,007,640 1,159,132
---------- ---------- ----------
Shareholders' equity:
6.5% First Series Perpetual Preference Shares, $1,000
par value, 209,249 shares authorized, issued and
outstanding....................................... 209,249 209,249 209,249
Series A Common Shares, $1 par value, 33,423,973,
33,427,848 and 34,445,889 authorized, and
26,415,480, 26,419,355 and 27,437,396 issued and
outstanding....................................... 26,415 26,419 27,437
Capital in excess of par value....................... 1,602,067 1,602,111 1,743,807
Undistributed net income............................. 104,390 78,851 14,161
Treasury shares, 1,092,071, 1,092,500 and 404,967
Common Shares at cost............................. (113,969) (114,016) (38,876)
---------- ---------- ----------
Total shareholders' equity................... 1,828,152 1,802,614 1,955,778
---------- ---------- ----------
Total liabilities and shareholders' equity... $2,808,756 $2,810,254 $3,114,910
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 7
CORPORATE PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED FOR THE YEARS ENDED
MARCH 31, DECEMBER 31,
-------------------- ------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
REVENUE:
Minimum rent........................... $ 85,481 $ 75,764 $319,862 $194,661 $169,344
Overage rent........................... 3,098 2,373 10,489 7,572 6,561
Expense recoveries..................... 36,973 33,620 138,579 111,708 101,429
Other revenues......................... 1,544 972 7,257 8,322 4,283
Interest income........................ 1,308 6,361 17,601 26,846 26,615
-------- -------- -------- -------- --------
Total revenue.................. 128,404 119,090 493,788 349,109 308,232
-------- -------- -------- -------- --------
EXPENSES:
Property expenses...................... 47,463 44,590 187,911 135,978 119,891
Provision for bad debts................ 726 629 2,732 2,181 3,048
Depreciation and amortization.......... 22,334 22,488 91,312 65,581 56,795
Administrative, trustee and other
expenses............................ 2,206 2,187 8,860 9,028 8,422
Interest expense....................... 16,474 19,014 69,562 66,536 51,828
Write-down of investment............... -- -- -- 8,200 --
-------- -------- -------- -------- --------
Total expenses................. 89,203 88,908 360,377 287,504 239,984
-------- -------- -------- -------- --------
Income before equity in earnings of joint
ventures............................... 39,201 30,182 133,411 61,605 68,248
Equity in earnings of joint ventures..... 5,554 5,254 21,390 48,796 50,709
-------- -------- -------- -------- --------
Income before gain on sales of properties
and merger-related costs............... 44,755 35,436 154,801 110,401 118,957
Gain on sales of properties.............. 44,311 116,522 122,410 73,970 398
-------- -------- -------- -------- --------
Merger-related costs..................... (7,539) -- -- -- --
Net income............................... 81,527 151,958 277,211 184,371 119,355
Preference share distributions earned.... (3,428) (3,428) (13,712) (13,712) (13,642)
-------- -------- -------- -------- --------
Net Income available to Common
Shareholders........................... $ 78,099 $148,530 $263,499 $170,659 $105,713
======== ======== ======== ======== ========
Net Income per average Common Share
outstanding............................ $3.08 $5.70 $10.20 $7.74 $5.00
-------- -------- -------- -------- --------
Net Income per average Common Share
outstanding assuming dilution.......... $3.01 $5.51 $10.14 $7.74 $5.00
-------- -------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 8
CORPORATE PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED FOR THE YEARS ENDED
MARCH 31, DECEMBER 31,
---------------------- -----------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net Income.......................................... $ 81,527 $ 151,958 $ 277,211 $ 184,371 $ 119,355
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in earnings of real estate joint
ventures........................................ (5,554) (5,254) (21,390) (48,796) (50,709)
Depreciation and amortization..................... 22,334 22,488 91,312 65,581 56,795
Gain on disposition of properties................. (44,311) (116,522) (122,410) (73,970) (398)
Write-down of investment.......................... -- -- -- 8,200 --
Decrease/(increase) in receivables and other
assets.......................................... 13,397 10,478 1,298 (5,787) 2,840
(Decrease)/increase in accounts payable and
accrued expenses................................ (20,892) (36,882) (6,529) (5,569) 476
--------- --------- --------- --------- ---------
Net cash provided by operating activities........... 46,501 26,266 219,492 124,030 128,359
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES
Investments in real estate.......................... (222,334) (20,926) (71,268) (155,144) (116,362)
Investments in real estate joint ventures........... (4,095) -- (22,566) -- (12,490)
Distributions from real estate joint ventures....... 6,723 51,495 68,392 49,168 50,926
Purchases of short-term investments................. -- (135,450) (205,450) (400,353) (104,574)
Sales and maturities of short-term investments...... 40,000 177,888 413,909 285,536 234,834
Cash (paid)/acquired in connection with acquisition
of property interests to pay related net
liabilities assumed of $76,346 in 1996............ -- -- (37,807) 58,004 --
Proceeds from repayment of mortgages receivable from
real estate joint venture partners................ -- 45,822 45,822 -- --
Proceeds from disposition of properties............. 82,337 1,657 3,482 3,500 865
Other............................................... (395) (837) -- (1,998) (4,003)
--------- --------- --------- --------- ---------
Net cash provided by/(used in) investing
activities........................................ (97,764) 119,649 194,514 (161,287) 49,196
--------- --------- --------- --------- ---------
FINANCING ACTIVITIES
Issuance of Notes................................... -- -- -- 246,943 --
Repayment of Bonds payable at maturity.............. -- (100,000) (100,000) --
Proceeds from revolving credit drawdown............. 40,000 -- -- -- --
Repayment of revolving credit drawdown.............. (40,000) -- -- -- --
Issuance of Common Shares........................... 47 60 60 68 22,545
Acquisition of Common Shares........................ (48) -- (75,140) -- --
Acquisition and retirement of Common Shares......... -- -- (2,805) (15,504) --
Principal payments on mortgages..................... (1,360) (1,306) (5,287) (383) (242)
Cash distributions.................................. (55,988) (55,419) (212,521) (170,210) (163,660)
--------- --------- --------- --------- ---------
Net cash (used in)/provided by financing
activities........................................ (57,349) (156,665) (395,693) 60,914 (141,357)
--------- --------- --------- --------- ---------
(Decrease)/increase in cash and cash equivalents...... (108,612) (10,750) 18,313 23,657 36,198
Cash and cash equivalents at beginning of period...... 124,808 106,495 106,495 82,838 46,640
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period............ $ 16,196 $ 95,745 $ 124,808 $ 106,495 $ 82,838
========= ========= ========= ========= =========
Supplemental Disclosure:
Interest paid (net of amounts capitalized) during
the period........................................ $ 28,988 $ 41,054 $ 74,200 $ 60,470 $ 50,848
Non-cash investing and financing activities:
Real estate interests, subject to mortgages of
$34,755, acquired for common shares............. -- -- -- $ 968,457 --
Redemption of common shares in exchange for real
estate interests, subject to mortgages of
$14,962 (1996).................................. -- $ 142,521 $ 142,521 $ 187,581 --
Mortgage note for $7,000 and land valued at $4,100
received in exchange for property with book
value of $6,528 (1997).......................... -- -- -- -- --
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 9
CORPORATE PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHARES OF BENEFICIAL INTEREST
---------------------------------------------
FOR THE THREE YEARS ENDED 6.5% FIRST SERIES A
DECEMBER 31, 1997 AND THE SERIES PERPETUAL COMMON CAPITAL IN
THREE MONTHS ENDED PREFERENCE SHARES SHARES EXCESS OF UNDISTRIBUTED TREASURY
MARCH 31, 1998 (UNAUDITED) $1,000 PAR VALUE $1 PAR VALUE PAR VALUE NET INCOME SHARES TOTAL
-------------------------- ----------------- ------------ ---------- ------------- --------- ----------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995............... $209,249 $21,450 $1,007,131 $ -0- $ (39,348) $1,198,482
Net income for the year................ -- -- -- 119,355 -- 119,355
Dividends paid:
$69.7873 per 6.5% First Series
Perpetual Preference Share......... -- -- -- (14,603) -- (14,603)
$7.0625 per Common Share............. -- -- (44,305) (104,752) -- (149,057)
Net proceeds from issuance of Common
Shares............................... -- 167 21,969 -- 409 22,545
Acquisition and retirement of Common
Shares and other..................... -- (2) (327) -- -- (329)
-------- ------- ---------- --------- --------- ----------
Balance at December 31, 1995............. 209,249 21,615 984,468 -0- (38,939) 1,176,393
Net income for the year................ -- -- -- 184,371 -- 184,371
Dividends paid:
$65.5282 per 6.5% First Series
Perpetual Preference Share......... -- -- -- (13,712) -- (13,712)
$7.3825 per Common Share............. -- -- -- (156,498) -- (156,498)
Exchange of Common Shares for partners'
interests in certain operating
properties........................... -- 7,392 961,065 -- -- 968,457
Net proceeds from issuance of Common
Shares............................... -- -- -- -- 68 68
Redemption and retirement of Common
Shares in exchange for interests in
certain operating properties......... -- (1,514) (196,667) -- -- (198,181)
Acquisition and retirement of Common
Shares and other..................... -- (56) (5,059) -- (5) (5,120)
-------- ------- ---------- --------- --------- ----------
Balance at December 31, 1996............. 209,249 27,437 1,743,807 14,161 (38,876) 1,955,778
Net income for the year................ -- -- -- 277,211 -- 277,211
Dividends paid:
$65.5282 per 6.5% First Series
Perpetual Preference Share......... -- -- -- (13,712) -- (13,712)
$7.685 per Common Share.............. -- -- -- (198,809) -- (198,809)
Net proceeds from issuance of Common
Shares............................... -- -- -- -- 60 60
Redemption and retirement of Common
Shares in exchange for interests in
certain operating property........... -- (1,089) (143,859) -- -- (144,948)
Acquisition and retirement of Common
Shares and other..................... -- 71 2,163 -- (75,200) (72,966)
-------- ------- ---------- --------- --------- ----------
Balance at December 31, 1997............. 209,249 26,419 1,602,111 78,851 (114,016) 1,802,614
Net income for the period................ -- -- -- 81,527 -- 81,527
Dividends paid:
$32.7641 per 6.5% First Series
Perpetual Preference Share........... -- -- -- (6,855) -- (6,855)
$1.94 per Common Share................. -- -- -- (49,133) -- (49,133)
Net proceeds from issuance of Common
Shares................................. -- -- -- -- 47 47
Acquisition of Common Shares and
other................................ -- (4) (44) -- -- (48)
-------- ------- ---------- --------- --------- ----------
Balance at March 31, 1998(unaudited)..... $209,249 $26,415 $1,602,067 $ 104,390 $(113,969) $1,828,152
======== ======= ========== ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 10
CORPORATE PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
DESCRIPTION OF BUSINESS
Corporate Property Investors, Inc. ("CPI") is a self managed real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended.
On March 13, 1998, CPI, formerly a Massachusetts business trust, reorganized
into a corporation under the laws of the State of Delaware. CPI engages in the
ownership, operation, management, leasing, acquisition, development and
expansion of income producing properties located throughout the United States.
As of March 31, 1998, CPI owns interests in, directly or through interests in
joint ventures, 23 super-regional and regional shopping centers, the General
Motors Building, N.Y.C., three smaller office buildings and other properties.
The proportionate property revenues of CPI's lines of business are
summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------ --------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Super-regional and regional shopping
centers........................... 80% 78% 79% 87% 88%
General Motors Building............. 17 18 17 8 7
Other office buildings.............. 2 3 3 4 4
Other............................... 1 1 1 1 1
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of CPI and its
consolidated subsidiaries. Significant intercompany balances, transactions and
accounts are eliminated in consolidation. CPI accounts for its investments in
real estate joint ventures which represent non-controlling ownership interests
under the equity method of accounting as CPI exercises significant influence
over the operating and financial policies of such joint ventures.
On December 31, 1997, CPI changed its method of accounting for investments
in real estate joint ventures from proportionate consolidation, whereby CPI's
financial statements included its proportionate share of the individual assets,
liabilities and items of income and expense of such partnerships, to the equity
method of accounting, whereby CPI's investments in such ventures are recorded
initially at cost and subsequently adjusted for net equity in income/(loss) and
cash contributions and distributions. CPI is accounting for this change
retroactively and, accordingly, has recast the 1997 quarterly and the 1996 and
1995 financial statements presented. This change did not affect CPI's reported
net income or financial position.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
REAL ESTATE AND DEPRECIATION AND AMORTIZATION POLICY
Real estate to be held and used in operations is stated at cost.
Depreciation and amortization are computed utilizing the straight-line method
over the estimated useful lives of the buildings and leaseholds.
Real estate held for sale is recorded at the lower of its carrying amount
or fair value less cost to sell. Depreciation is not recorded during the period
real estate is held for sale.
F-7
<PAGE> 11
CORPORATE PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES -- (CONTINUED)
REAL ESTATE AND DEPRECIATION AND AMORTIZATION POLICY -- (CONTINUED)
Interest, real property taxes, salaries and related costs, and other
carrying costs are capitalized during periods of construction, development or
improvement. Department store and tenant inducements and costs associated with
leasing of operating properties are capitalized and amortized on a straight-line
basis over the lives of the related operating covenants and tenant leases.
Interest costs capitalized during the three months ended March 31, 1998 and
1997 (unaudited) and the years ended December 31, 1997, 1996 and 1995 were
$1.2 million, $0.8 million, $3.7 million, $7.8 million, and $7.0 million,
respectively.
Financial Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
requires impairment losses to be recognized for long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows are not sufficient to recover the assets' carrying amount. The impairment
loss is measured by comparing the fair value of the asset less cost to sell to
its carrying amount. Effective January 1, 1996, CPI adopted Statement 121 for
which no provision was required.
DEFERRED CHARGES
Direct financing and issue costs on debt are deferred and amortized over
the terms of the related debt as a component of interest expense.
REVENUE RECOGNITION
Minimum rents are accrued on a straight-line basis over the terms of the
respective leases. Overage rents are recognized when earned. Expense recoveries
from tenants for real estate taxes and other recoverable operating expenses are
recognized as revenue in the period the applicable expenditures are chargeable
to tenants.
TAXES
CPI intends to continue to qualify as a real estate investment trust as
defined in the Internal Revenue Code, and as such will not be taxed on that
portion of its taxable income which is distributed to shareholders, provided
that at least 95% of its real estate investment trust taxable income is
distributed. CPI has distributed all of its taxable income for 1995 and 1996 and
intends to distribute all of its 1997 and 1998 taxable income and, accordingly,
no provision for Federal income taxes has been made in the financial statements.
INVESTMENTS IN REAL ESTATE JOINT VENTURES
During 1996 and 1995 CPI had interests ranging from 15% to 62 1/2% in
twelve real estate joint ventures which operated and net leased real estate. In
November and December 1996, CPI acquired its partners' interests in certain
joint ventures and sold a joint venture interest in January 1997 (see
"Acquisitions and Dispositions"). Accordingly, income and expenses shown below
include amounts for such joint ventures for the respective period the joint
ventures were owned by CPI.
As a result of the aforementioned transactions CPI has a 50% interest in
seven real estate joint ventures each of which own and operate a shopping
center. In addition, CPI has a 50% interest in a joint venture which is
developing a super-regional shopping center in Georgia for which CPI is
providing 85% of the construction funding. Generally, net income/(loss) for each
joint venture is allocated consistent with the ownership interests held by each
joint venturer. As of March 31, 1998 (unaudited) and December 31, 1997 and 1996,
the
F-8
<PAGE> 12
CORPORATE PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES -- (CONTINUED)
INVESTMENTS IN REAL ESTATE JOINT VENTURES -- (CONTINUED)
unamortized excess of CPI's investment over its share of the equity in the
underlying net assets of the joint ventures was approximately $42.1 million,
$42.4 million and $45.6 million, respectively. This excess is amortized over the
estimated lives of the related real estate assets. The combined condensed
balance sheets of the real estate joint ventures, after elimination of mortgages
payable to CPI in 1996, as of March 31, 1998 (unaudited), December 31, 1997 and
1996 and the related statements of net income for the three months ended
March 31, 1998 and 1997 (unaudited) and for the years ended December 31, 1997,
1996 and 1995 follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
---------------- --------------------
1998 1997 1996
---------------- -------- --------
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C> <C>
Assets
Real estate assets................................... $327,729 $322,467 $351,043
Other................................................ 22,698 26,995 19,550
-------- -------- --------
Total Assets................................. $350,427 $349,462 $370,593
======== ======== ========
Liabilities
Mortgages payable.................................... $236,802 $237,868 $149,540
Other................................................ 9,750 10,675 11,396
-------- -------- --------
Total Liabilities............................ $246,552 $248,543 $160,936
======== ======== ========
Joint Venturers' Equity
CPI.................................................. $ 69,577 $ 66,816 $113,824
Others............................................... 34,298 34,103 95,833
-------- -------- --------
Total Joint Venturers' Equity................ $103,875 $100,919 $209,657
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, FOR THE YEARS ENDED DECEMBER 31,
-------------------- ----------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- --------- ---------
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Income............................ $ 30,724 $ 28,725 $118,461 $ 293,293 $ 299,559
Expenses.......................... (19,125) (20,218) (76,284) (173,303) (177,439)
-------- -------- -------- --------- ---------
Net Income........................ $ 11,599 $ 8,507 $ 42,177 $ 119,990 $ 122,120
======== ======== ======== ========= =========
</TABLE>
F-9
<PAGE> 13
CORPORATE PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES -- (CONTINUED)
INCOME PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share." Statement 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. All earnings per share amounts for all periods have been
presented to conform to Statement 128 requirements. The following table sets
forth the computation of basic and diluted earnings per common share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31,
----------------------------- ---------------------------------------
1998 1997 1997 1996 1995
------------- ------------- ----------- ----------- -----------
(UNAUDITED)
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
NUMERATOR:
Net income................ $ 81,527 $ 151,958 $ 277,211 $ 184,371 $ 119,355
Preference Share
distributions earned... (3,428) (3,428) (13,712) (13,712) (13,642)
----------- ----------- ----------- ----------- -----------
Numerator for basic
earnings per
share -- income
available to Common
Shareholders........... 78,099 148,530 263,499 170,659 105,713
Effect of dilutive
securities:
Preference Share
distributions
earned............... 3,428 3,428 13,712 13,712 13,642
----------- ----------- ----------- ----------- -----------
Numerator for diluted
earnings per share..... $ 81,527 $ 151,958 $ 277,211 $ 184,371 $ 119,355
=========== =========== =========== =========== ===========
DENOMINATOR:
Denominator for basic
earnings per share --
weighted average
shares................. 25,353,000 26,066,000 25,835,000 22,045,000 21,160,000
Effect of dilutive
securities:
Employee Stock Options.... 237,000 8,000
Convertible Preference
Shares................. 1,505,000 1,505,000 1,505,000 1,505,000 1,507,000
----------- ----------- ----------- ----------- -----------
Denominator for diluted
earnings per share..... 27,095,00 27,571,000 27,348,000 23,550,000 22,667,000
=========== =========== =========== =========== ===========
Basic earnings per
share.................. $ 3.08 $ 5.70 $ 10.20 $ 7.74 $ 5.00
=========== =========== =========== =========== ===========
Diluted earnings per
share.................. $ 3.01 $ 5.51 $ 10.14 $ 7.74 $ 5.00
=========== =========== =========== =========== ===========
</TABLE>
The above computations are based upon the dilutive effects of agreements
presently in effect. The basis for such computations is anticipated to change in
the event the merger with Simon DeBartolo Group, Inc. (see "Commitments,
Contingencies and Other Comments") is completed.
F-10
<PAGE> 14
CORPORATE PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES -- (CONTINUED)
SHORT TERM INVESTMENTS
At March 31, 1998 (unaudited) and December 31, 1997 and 1996, short-term
investments, including cash equivalents, are stated at amortized cost (which
equates to market) and consist principally of U.S. Government securities and
repurchase agreements collateralized by U.S. Government securities which mature
within one year and are intended to be held to maturity. CPI considers all
highly liquid investments with a maturity of three months or less when purchased
to be cash equivalents.
EMPLOYEE STOCK BASED PLANS
CPI follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
stock based plans. Accordingly, because the purchase price under the employee
share purchase plan and the exercise price under the share option plan equals
the fair value of CPI's stock at the dates of purchase or grant, respectively,
no compensation expense is recognized under the plans.
SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
which is effective for fiscal years beginning after December 15, 1997. CPI is
assessing the operating and reportable segment rules and is considering the
impact of this Statement on its financial statement disclosures.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the presentation for the period ended March 31, 1998.
These reclassifications have no significant impact on CPI's financial
statements.
F-11
<PAGE> 15
CORPORATE PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACQUISITIONS AND DISPOSITIONS
On November 15, 1996, CPI issued 5.76 million Series A Common Shares, and
caused Corporate Realty Consultants, Inc. ("CRC") to issue related interests in
CRC, to a shareholder in exchange for $757 million of partnership interests in
certain operating properties holding interests in seven regional shopping
centers, one mixed-use development and the General Motors Building. In addition,
on December 13, 1996, CPI issued 1.72 million Series A Common Shares, and caused
CRC to issue related interests in CRC, to an affiliate of a shareholder in
exchange for a $227 million partnership interest holding the remaining interest
in the General Motors Building. The transactions were accounted for using the
purchase method of accounting and, accordingly, commencing on November 15, 1996,
100% of the assets, liabilities, revenues and expenses of the wholly-owned
properties are included in CPI's financial statements. Prior thereto, CPI had
accounted for its investment in these properties under the equity method of
accounting.
On December 31, 1996 and January 2, 1997, respectively, CPI, at a cost of
$198 million and $145 million, respectively, redeemed 1.51 million and 1.09
million Series A Common Shares (and acquired related interests in CRC) held by a
shareholder in exchange for cash of $13 million and interests in three shopping
center properties valued at $330 million. The exchanges resulted in gain on
disposition of the properties of $186.7 million, of which $71.7 million was
recognized in December 1996 and $115 million was recognized in January 1997.
On January 9, 1998, CPI purchased a super-regional shopping center and
adjoining land parcels located in Atlanta, Georgia for $198 million.
Approximately $40 million was borrowed under a revolving credit facility to
partially fund the purchase.
On January 30, 1998, CPI sold a super-regional shopping center for $81
million. Proceeds from the sale were used to repay the aforementioned borrowing
under the revolving credit facility.
The following unaudited pro forma results of operations assume the
acquisitions and dispositions closed as of January 1, 1995, and give effect to
adjustments for depreciation expense related to the interest in properties
acquired and elimination of gain on the disposition of the properties.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------------- ---------------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Rentals and related property
income.................... $ 126,132 $ 114,147 $ 481,907 $ 443,391 $ 419,496
=========== =========== =========== =========== ===========
Net Income.................. $ 38,256 $ 38,053 $ 167,683 $ 141,033 $ 149,928
=========== =========== =========== =========== ===========
Net Income per average
Common Share
outstanding............... $ 1.37 $ 1.33 $ 5.96 $ 4.90 $ 5.25
=========== =========== =========== =========== ===========
Average Common Shares
outstanding............... $25,353,000 $26,066,000 $25,835,000 $26,011,000 $25,949,000
=========== =========== =========== =========== ===========
</TABLE>
F-12
<PAGE> 16
CORPORATE PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REAL ESTATE
<TABLE>
<CAPTION>
CONSTRUCTION & LAND HELD ACCUMULATED
MARCH 31, 1998 BUILDINGS & PRE-CONSTRUCTION FOR DEPRECIATION AND MORTGAGES
(UNAUDITED) LAND LEASEHOLDS COSTS DEVELOPMENT AMORTIZATION PAYABLE
- -------------- -------- ----------- ---------------- ----------- ---------------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Shopping centers........ $225,214 $2,116,858 $37,315 $ 6,834 $502,899 $ 1,306
Office building held for
sale.................. 12,933 679,623 -- -- 107,589 11,976
Office buildings
(including related
mortgage loan of
$20,565) and
industrial park....... 12,886 80,439 -- 516 22,644 --
Properties subject to
net lease (principally
retail facilities) and
other (including
mortgage loans of
$23,465 of which
$16,495 is related)... 6,040 21,003 -- 16,495 6,345 1,003
-------- ---------- ------- ------- -------- -------
$257,073 $2,897,923 $37,315 $23,845 $639,477 $14,285
======== ========== ======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
- -----------------
<S> <C> <C> <C> <C> <C> <C>
Shopping centers........ $196,052 $2,013,456 $30,994 $ 6,835 $517,386 $ 1,361
Office buildings
(including related
mortgage loan of
$20,565) and
industrial park....... 25,819 744,839 703 516 121,102 13,230
Properties subject to
net lease (principally
retail facilities) and
other (including
mortgage loans of
$22,054 of which
$15,069 is related)... 6,796 20,993 -- 15,069 6,260 1,054
-------- ---------- ------- ------- -------- -------
$228,667 $2,779,288 $31,697 $22,420 $644,748 $15,645
======== ========== ======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
- -----------------
<S> <C> <C> <C> <C> <C> <C>
Shopping centers
(including related
mortgage loans of
$45,835).............. $191,759 $1,963,579 $77,032 $ 6,293 $442,202 $ 1,568
Office buildings
(including mortgage
loan of $20,565) and
industrial park....... 26,003 748,802 -- 516 110,764 18,100
Properties subject to
net lease (principally
retail facilities) and
other................. 8,370 15,233 -- -- 6,629 1,411
-------- ---------- ------- ------- -------- -------
$226,132 $2,727,614 $77,032 $ 6,809 $559,595 $21,079
======== ========== ======= ======= ======== =======
</TABLE>
F-13
<PAGE> 17
CORPORATE PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECEIVABLES AND OTHER ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
---------------- --------------------
1998 1997 1996
---------------- -------- --------
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C> <C>
Receivables (principally rentals) less allowance of
$18,165, $18,429 and $19,165......................... $ 61,310 $ 71,363 $ 75,474
Prepaid expenses and deferred charges.................. 14,213 20,301 19,624
Deferred compensation plan investments................. 14,607 13,643 13,866
Issue costs on recourse debt, net of accumulated
amortization of $3,810, $3,614 and $5,018............ 6,481 6,677 7,539
Tenant security deposits............................... 2,173 2,380 2,380
Other.................................................. 5,393 4,586 3,628
-------- -------- --------
$104,177 $118,950 $122,511
======== ======== ========
</TABLE>
MORTGAGES, NOTES AND BONDS PAYABLE
Mortgages payable are due in installments over various periods through
2009. Interest rates on the mortgages range from 4 3/4% to 9 3/4% per annum. The
mortgage lenders have no recourse beyond the related property for repayment of
mortgage loans.
NOTES AND BONDS PAYABLE
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
---------------- --------------------
1998 1997 1996
---- ---- ----
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C> <C>
8.75% Bonds due 1997 (effective rate of 8.7%).......... -- -- $100,000
9.625% Note due 1998................................... $ 18,363 $ 18,415 18,611
9% Notes due 2002 (effective rate of 9.1%)............. 250,000 250,000 250,000
7.05% Notes due 2003 (effective rate of 7.2%).......... 100,000 100,000 100,000
7.75% Notes due 2004 (effective rate of 7.9%).......... 150,000 150,000 150,000
7.18% Notes due 2013 (effective rate of 7.2%).......... 75,000 75,000 75,000
7.875% Notes due 2016 (effective rate of 7.9%)......... 250,000 250,000 250,000
-------- -------- --------
$843,363 $843,415 $943,611
======== ======== ========
</TABLE>
As of December 31, 1997, principal payments required on all debt are:
<TABLE>
<CAPTION>
AMOUNT
----------
($ IN
THOUSANDS)
<S> <C>
Years ending December 31,
1998........................................................ $ 23,954
1999........................................................ $ 5,820
2000........................................................ $ 3,232
2001........................................................ $ 470
2002........................................................ $250,584
Thereafter.................................................. $575,000
</TABLE>
The fair value of (i) mortgages and (ii) notes and bonds payable is
estimated to be $13.9 million and $879 million, respectively, at March 31, 1998
(unaudited), $15.2 million and $902 million, respectively, at
F-14
<PAGE> 18
CORPORATE PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MORTGAGES, NOTES AND BONDS PAYABLE -- (CONTINUED)
December 31, 1997, and $19.9 million and $973 million, respectively, at December
31, 1996 using discounted cash flow analyses based upon indications of market
pricing for similar types of debt.
CORPORATE REALTY CONSULTANTS, INC.
Substantially all of the outstanding shares of CRC have been deposited in
trusts, the beneficial interests in which are owned by participating CPI
shareholders in proportion to their respective number of CPI shares.
The condensed consolidated balance sheets of CRC and its subsidiaries and
the related statements of operations, which are not included in the financial
statements of CPI, are summarized as follows:
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------- --------------------
1998 1997 1996
---- ---- ----
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C> <C>
Assets:
Buildings............................................... $17,076 $16,938 $17,399
Investments in joint ventures........................... 19,341 18,007 449
Land.................................................... 4,595 4,595 4,595
Other investments....................................... -- -- 1,104
------- ------- -------
41,012 39,540 23,547
Cash and cash equivalents............................... 3,900 4,147 4,797
Receivables and other assets............................ 2,296 2,376 2,710
------- ------- -------
Total Assets.................................. $47,208 $46,063 $31,054
======= ======= =======
Liabilities and Stockholders' Equity:
Mortgage and notes payable.............................. $38,181 $36,818 $21,988
Other liabilities....................................... 5,025 4,929 4,027
------- ------- -------
Total liabilities....................................... 43,206 41,747 26,015
Stockholders' equity.................................... 4,002 4,316 5,039
------- ------- -------
Total Liabilities and Stockholders' Equity.... $47,208 $46,063 $31,054
======= ======= =======
</TABLE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
---------------- ------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income/(loss)............................... $ (45)(1) $ (21) $1,177(1)(2) $(920)(3) $ (6)
Per CRC average common share outstanding........ $(.02) $(.01) $ .43 $(.39) $ Nil
Per CPI average common share outstanding........ Nil Nil $ .04 $(.04) $ Nil
</TABLE>
- ---------------
(1) Includes 85% share of gain on sale of land by a joint venture.
(2) Includes gain on sale of partnership interests of $1,259,000.
(3) Includes write-down of $1,100,000 on land held for sale.
F-15
<PAGE> 19
CORPORATE PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CORPORATE REALTY CONSULTANTS, INC. -- (CONTINUED)
For the three months ended March 31, 1998 and 1997 (unaudited) CRC paid
distributions of $268,000 and $276,000. Such distributions are equivalent to one
cent per CPI common share for each period. For the years ended December 31,
1997, 1996 and 1995, CRC paid distributions of $1,095,000, $965,000 and
$1,413,000, respectively. Such distributions are equivalent to 4, 4 1/4 and
6 1/4 cents, respectively, per CPI common share for each year.
LEASES
CPI has various interests in regional shopping centers, office buildings
and other operating properties located primarily in the northeast and southern
regions of the United States. Rental income from such properties is earned under
leases that are classified and accounted for as operating leases. Leases with
retail stores generally provide for minimum rentals plus overage rentals based
on the tenants' sales volume and also require the tenant to pay a portion of
property operating expenses. Office tenant leases provide for rent plus
reimbursement of operating expenses. Terms of leases generally range from 5 to
30 years and contain various renewal options. Terms of net leases range from 15
to 30 years excluding various renewal options. In addition, CPI owns land under
an office building net leased to CRC for a period of 99 years at an annual
rental of $450,000.
At December 31, 1997, future minimum rentals to be received under the
above-mentioned leases are:
<TABLE>
<CAPTION>
AMOUNT
----------------
($ IN THOUSANDS)
<S> <C>
Years ending December 31,
1998........................................................ $ 302,830
1999........................................................ 280,920
2000........................................................ 266,000
2001........................................................ 252,460
2002........................................................ 228,520
Thereafter.................................................. 893,030
----------
Total............................................. $2,223,760
==========
</TABLE>
At December 31, 1997, future minimum rentals to be paid under
non-cancellable ground leases and shopping center operating leases (which expire
principally in 2002, 2009 and 2070) are $.75 million for each of the years
ending December 31, 1998 through December 31, 2001, $.6 million for the year
ending December 31, 2002 and $8.5 million thereafter for a total of $12.1
million. The leases provide for renewals at the end of the initial lease terms
for periods ranging from 5 to 60 years.
PREFERENCE SHARES
The 6.5% First Series Perpetual Preference Shares are convertible into
voting Series A Common Shares at the adjusted conversion price of $139.07 per
Common Share for years ended December 31, 1997 and 1996 and $138.87 per Common
Share for year ended December 31, 1995, (subject to adjustment in certain
events), at the option of the holder after the later of August 31, 2000, and the
end of the first year in which distributions that would have been payable on the
voting Series A Common Shares into which a single 6.5% First Series Perpetual
Preference Share could have been converted on the preceding December 31 would
have exceeded $65.53. Conversion may occur before such date if more than 50% of
the outstanding 6.5% First Series Perpetual Preference Shares elect to convert.
A total of 1,600,000 voting Series A Common Shares have been reserved for
issuance upon conversion. The dividends on 6.5% First Series Perpetual
Preference Shares are cumulative, computed on a compound quarterly basis and
payable semi-annually on March 31 and September 30, when and as declared by
CPI's Board of Directors.
F-16
<PAGE> 20
CORPORATE PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LEASES -- (CONTINUED)
The dividends are payable solely out of operating cash flow, as defined. At
December 31, 1997, accumulated dividends earned but not yet payable amounted to
$3.4 million ($16.38 per share). The holders of 6.5% First Series Preference
Shares are entitled to vote with voting Series A Common Shares as a single
class; each First Series Preference Share is entitled to a number of votes equal
to its par value divided by the conversion price. The 6.5% First Series
Preference Shares have a liquidation preference of $1,000 par value plus
accumulated and unpaid dividends.
COMMON SHARE PURCHASE PLAN
Certain shareholders have entered into contracts to purchase $4.1 million
of units (Series A Common Shares and related interests in CRC) quarterly through
November 1999. Such units:
(i) will have been tendered by shareholders at prices not to exceed
the appraised net asset value per CPI/CRC unit as of the preceding December
31st (the "Appraised Value") and/or
(ii) will be newly issued at the Appraised Value.
CPI is not obligated to purchase tendered units in excess of units
contracted to be sold to shareholders. The contracts are terminable by CPI at
any time and by each participating shareholder, 30 days after notice to CPI. CPI
has elected to suspend the operation of such contracts until further notice.
DEFERRED COMPENSATION PLAN
CPI has a deferred compensation program which permits trustees and certain
management employees to defer portions of their compensation on a pretax basis.
The participants designate the investment of the deferred funds, based on
various alternatives and the Company historically purchases such investments
which are included in receivables and other assets. Total deferred compensation
liabilities at March 31, 1998 (unaudited) and December 31, 1997 and 1996 were
$23.3 million, $22.2 million and $21.9 million, respectively.
401(K) SAVINGS PLAN
CPI is the sponsor of a defined contribution plan that provides retirement
benefits for full time employees. The plan is administered by a third party. CPI
does not contribute to the plan and plan costs are not significant for the
periods presented.
EMPLOYEE SHARE PURCHASE PLAN
The Employee Share Purchase Plan, as amended, provides for the issuance of
rights to purchase units (Series A Common Shares and related interests in CRC)
at fair value, as defined. The Plan stipulates that consideration for each unit
purchased will be any combination of cash, a recourse note receivable from the
employee and a permanent restriction payable to CPI upon transfer of the unit.
Sales of units issued pursuant to this plan are restricted during periods
ranging up to 60 months following the issuance of rights. No rights were issued
during the three months ended March 31, 1998 or 1997 (unaudited), nor the years
ended December 31, 1997, 1996 and 1995. As of March 31, 1998 (unaudited), $32.3
million of notes receivable and permanent restrictions relating to the 463,000
units purchased by employees has been deducted from "Capital in Excess of Par
Value."
SHARE OPTION PLAN
Under CPI's 1993 Share Option Plan 1,000,000 Series A Common Shares of
Beneficial Interest in CPI (and related interests in CRC) are reserved for
issuance to employees and directors upon exercise of options. The option prices
are to be equal to the fair value of the optioned shares at the date of grant
and each option
F-17
<PAGE> 21
CORPORATE PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SHARE OPTION PLAN -- (CONTINUED)
term shall not exceed ten years. A reconciliation of the share option activity,
and related information, as of March 31, 1998 and 1997 (unaudited) and December
31, 1997, 1996 and 1995 and for the respective three month and twelve month
periods then ended are presented below.
<TABLE>
<CAPTION>
MARCH 31, 1998 MARCH 31, 1997 DECEMBER 31, 1997 DECEMBER 31,1996 DECEMBER 31, 1995
------------------ ------------------ ------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
period............. 814,000 $127.39 336,000 $138.83 336,000 $138.83 339,000 $138.83 345,000 $138.83
Granted.............. 480,000 120.50 515,000 120.50
Exercised............
Cancelled............ (2,000) 138.83 (37,000) 135.36 (3,000) 138.83 (6,000) 138.83
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Outstanding at end of
period............. 814,000 $127.39 814,000 $128.02 814,000 $127.39 336,000 $138.83 339,000 $138.83
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Exercisable at end of
period............. 814,000 $127.39 250,500 $138.83 814,000 $127.39 252,000 $138.83 170,000 $138.83
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The per share weighted average estimated fair value of options granted
during 1997 was $1.23. The fair value was estimated on the date of grant using
the Black-Scholes (Minimum Value) option-pricing model with the following
assumptions: risk-free interest rate of 6.74%; dividend yield of 6.5%; and
expected life of five years.
Options outstanding at March 31, 1998 had exercise prices of $120.50 and
$138.83 and have a weighted average remaining contractual life of 7.7 years.
The option prices were equal to the market prices at the date of grant and,
accordingly, no compensation cost has been recognized for stock options in the
financial statements. If CPI had applied a fair value-based method to account
for options granted, net income for the three month period ended March 31, 1997
(unaudited) would have been $151.3 million ($5.67 per share of common stock) and
net income for the year ended December 31, 1997, would have been $276.6 million
($10.18 per share of common stock). The pro forma amounts reflect only options
granted in 1997. The full impact of calculating compensation cost for stock
options under a fair value-based method is not reflected in the pro forma
amounts because compensation cost is reflected over the options' vesting periods
and compensation cost for options granted in 1993 is not required to be
considered.
COMMITMENTS, CONTINGENCIES AND OTHER COMMENTS
(1) On February 19, 1998 CPI and CRC signed a definitive agreement to merge
with Simon DeBartolo Group, Inc. ("SDG"); a publicly-traded real estate
investment trust. The transactions have been approved by all of the companies'
Boards of Directors/Trustees. A majority of CPI's shareholders have agreed to
approve the transaction which is subject to the approval of the shareholders of
SDG, as well as customary regulatory and other conditions. The transaction is
expected to be completed in the third quarter of 1998.
The transaction values CPI at approximately $5.8 billion, including the
assumption of debt. Each CPI common share will be entitled to $90 in cash, $70
in combined REIT common stock and $19 of liquidation preference in 6 1/2%
convertible preferred stock of the combined REIT. The common stock component of
the consideration is based upon a fixed exchange ratio of 2.0818 combined REIT
shares and is subject to a 15% symmetrical collar based upon the price of SDG
common stock determined at closing. Adjustments related to such collar will be
in cash.
F-18
<PAGE> 22
CORPORATE PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMMITMENTS, CONTINGENCIES AND OTHER COMMENTS -- (CONTINUED)
In the first quarter of 1998 CPI incurred approximately $7.5 million of
merger-related costs, principally legal and advisory fees, which is presented on
the accompanying statements of income. If the merger is effected, additional
merger cost, including severance payments pursuant to CPI's present policies,
professional fees and other transaction costs, payable by CPI or its successor
are projected to be approximately $70.7 million.
(2) CPI has entered into commitments for future real estate investments
aggregating approximately $122 million at March 31, 1998 (unaudited) and $122
million, $127 million and $271 million at December 31, 1997, 1996 and 1995,
respectively.
(3) In 1996, CPI determined that the decline in value of its $10 million
investment in a real estate entity was not temporary and, accordingly, wrote
down the investment by $8.2 million to estimated fair value based on an
independent appraisal of the property.
(4) CPI is a defendant in various lawsuits arising in the ordinary course
of business. In the opinion of management, based upon the advice of both outside
and corporate counsel, resolving these actions will not have a material effect
upon CPI's financial condition.
(5) On May 7, 1998, the Directors declared distributions ($49.1 million) of
$1.94 per common share to shareholders of record at the close of business on May
7, 1998, payable May 15, 1998.
(6) On May 7, 1998, the Directors of CRC declared distributions ($.27
million) of $.10 per CRC common share to shareholders of record at the close of
business on May 7, 1998, payable May 15, 1998. Such distribution is equivalent
to 1 cent per CPI common share.
(7) CPI has entered into a $250 million revolving credit agreement with 13
banks. The agreement terminates on June 26, 2001. Interest, at CPI's choice, is
computed at (1) a rate determined by a competitive bidding process, (2) a rate
equal to a spread (currently 5/8%) over the adjusted London interbank (LIBOR)
rate or (3) a rate equal to a spread (currently 0%) over the higher of the prime
rate or 1/2% over the Federal Funds rate. The interest rate on each LIBOR-based
borrowing is fixed at the time of borrowing. As of June 15, 1998 (unaudited),
$13 million at an average rate of 6.1% is outstanding pursuant to this
agreement.
SUBSEQUENT EVENTS -- (UNAUDITED)
(1) In connection with the Merger, CPI anticipates soliciting consents from
the holders of CPI's Notes to permit CPI to assign substantially all of its
assets to the SDG Operating Partnership and the SDG Operating Partnership to
assume CPI's Note liabilities. Certain of the Note Indentures governing the
Notes would require the redemption of $575 million of the Notes if substantially
all the assets were transferred to an entity that does not qualify as a REIT. If
holders of at least 66 2/3% in outstanding principal amount of each issue of CPI
Notes consent to the proposed amendments to the CPI Indentures prior to the
Merger, the SDG Operating Partnership will become the successor obligor on the
CPI Notes. As an alternative to transferring CPI's assets to the SDG Operating
Partnership, SDG anticipates transferring substantially all of CPI's assets to
The Retail Property Trust ("RPT"), a REIT subsidiary of the SDG Operating
Partnership and RPT will assume CPI's obligations under the Notes. SDG and CPI
have received inquiries from the trustee under the Note Indentures and certain
note holders as to the means being utilized to effect compliance with the terms
of the Note Indentures in connection with the Merger. Certain of such holders
have expressed their view that they do not believe compliance may be effected
without receiving waivers from the requisite percentage of CPI's note holders.
CPI and SDG believe that the transfer of CPI's assets to RPT and RPT's
assumption of CPI's liabilities fully complies with the provisions of the Note
Indentures.
(2) On July 31, 1998 CPI sold the General Motors Building, New York City
for $800 million, resulting in a gain of $204 million ($8.05 per Common Share).
F-19
<PAGE> 23
CORPORATE PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUBSEQUENT EVENTS -- (UNAUDITED) -- (CONTINUED)
The carrying amount of the General Motors Building of $585 million is
separately classified in the March 31, 1998 (unaudited) consolidated balance
sheet. Rentals and related property income and net income from this property
included in the consolidated statements of income are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------------ ------------------
1998 1997 1997 1996
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Rentals and related property income................. $23,371 $22,397 $91,502 $11,282
======= ======= ======= =======
Net operating income................................ $10,591 $ 8,008 $32,602 $ 3,571
======= ======= ======= =======
</TABLE>
- ---------------
Prior to November 15, 1996 CPI accounted for its 30% investment in the
General Motors Building under the equity method of accounting. See "Acquisitions
and Dispositions." Rentals and related property income of $24,420 and $27,316
and net operating income of $8,278 and $8,114 were included in equity in
earnings of joint ventures for the period ended November 15, 1996 and the year
ended December 31, 1995, respectively.
F-20
